Microsoft Says Yahoo-Google Deal Threatens Internet Privacy

A senior Microsoft official told U.S. lawmakers on Tuesday that Yahoo's agreement to outsource search advertising to Google jeopardizes Americans' privacy because it puts 90% of all Internet search queries into the hands of one company.

"If one company -- Google -- controls up to 90% of online search advertising, it will have a complete picture of your online activities," said Brad Smith, Microsoft's senior VP and general counsel. Smith was testifying before the Senate and the House's antitrust sub-committees, both of which are eyeing Yahoo's arrangement with Google for possible antitrust violations.

Yahoo last month agreed to a deal under which some queries entered into its sites will return search ads pulled from Google's network. Yahoo says it expects the deal will generate between $250 million and $450 million in additional revenue for the company in its first 12 months of implementation.

But Smith said that if Google gains control over 90% of search queries, "Congress won't need to enact a federal privacy policy, we will already have a national privacy policy -- Google's privacy policy."

Smith also said that Google's dominance over the search market would give it unprecedented control of Internet advertising rates -- a development that would hurt businesses. "Never before in the history of advertising has one company been in the position to control prices on up to 90% of advertising in a single medium," said Smith.

"Not in television, not in radio, not in publishing. It should not happen on the Internet," he added.

While Microsoft may be genuinely concerned about the privacy and competition implications of Yahoo's search deal with Google, it also has strategic reasons for hoping that the arrangement falters or is blocked by lawmakers.

Microsoft in recent weeks has put forth various proposals under which it would acquire Yahoo's search business and marry it to its existing MSN search network. The more that Yahoo's search unit becomes intertwined with Google, the more difficult it becomes for Microsoft to make such an acquisition.

In its most recent proposal, Microsoft offered to purchase Yahoo's search business for $1 billion plus ongoing cash payments to Yahoo for in exchange for search referrals from its Web sites. Yahoo board members, in a conference call Friday that included billionaire investor Carl Icahn and Microsoft CEO Steve Ballmer, rejected the plan.

Icahn is waging a proxy battle against Yahoo's board and will present a slate of alternate board members for election at Yahoo's annual shareholder meeting on Aug. 1 in San Francisco.

Icahn, who owns several million Yahoo shares, has said that if he wins control of the Internet company he will push for a sale of its search assets to Microsoft or for an outright acquisition by Microsoft.